The ecobiz buzz these days is all about greening the grid, what with tens of billions of dollars in the stimulus bill for transforming the electricity system into a digitalized, interactive version of the Internet. Just on Wednesday, the European island nation of Malta announced a $91 million deal with IBM to not only create a smart power grid but to smarten up its water system as well.

Water, in fact, is likely to emerge in coming years as big an opportunity as electricity for tech companies. Just as climate change is driving efforts to add intelligence to the power grid to more efficiently manage electricity usage and new sources of renewable energy, a warming world is making water an even scarcer resource.

“How do you look at the ecosystem of water and make it a smart grid?” asks Drew Clark, director of strategy for IBM’s Venture Capital Group. “It really makes a lot of sense if you think about it. It’s a scarce commodity, just like electrons — it’s more scarce, in fact. It needs to be kept secure, it needs to be kept safe, it very often is abundant except when you need it a certain time and in a certain place.”

Clark’s job is to find companies – startups usually – with technology IBM (IBM) can tap for business units like its Global Energy & Utilities Industry. These days that means companies that develop sensor networks and other technologies that can be deployed across smart grids as part of IBM’s Smarter Planet initiative to essentially create a physical version of the Internet for the natural and man-made worlds – water systems, transportation, agriculture.

That, of course, would generate untold terabytes of data that would need to be crunched, mined and analyzed, spurring demand for the type of software and Big Iron computing that is IBM’s forté.

“We look at taking otherwise less-smart systems and essentially instrument them with these sensors and make them intelligent,” Clark told Green Wombat at IBM’s San Francisco offices. “Every one of these smart grids are based on some collection, in some cases millions, of smart sensors that are sensing some characteristic. IBM looks at it and says this is an information management problem. How do we take the information from all these devices and sensors and bring it together in a way to make sense out of it, business sense out of it.”

Take water. In California, for instance, a three-year drought has put water districts under pressure to cut their customers’ consumption while conserving every drop possible. Many districts still rely on dispatching workers in trucks to check on water quality and water levels and check for pipeline leaks and breaks.

IBM is designing systems to automate that process by placing small sensors in reservoirs and along pipelines right up to homes and businesses. “These sensors are wireless and form a mesh network,” Clark says. “This one talks to this one that bridges to this one that bridges to another and every so often there is an access point that is able to gather up all the information.”

Big Blue analyzes that data and displays it on a computer dashboard that allows water managers to monitor their systems and head off problems like leaks or contamination. For example, General Electric (GE), Clark says, makes a sensor the size of a half-dollar that can detect multiple environmental conditions.

IBM has pilot projects underway with some water districts but faces a business challenge: Those public agencies typically are underfunded and don’t have millions of dollars on hand to roll out smart water systems. Money is usually not so much of a problem for Big Agriculture and Clark says IBM’s early customers are corporate farming giants like Archer Daniels Midland (an ADM spokesman points out that the company is a crop processor, not a farmer) that want sensor networks to better manage everything from irrigation systems to soil conditions.

Clark expects that after energy, water will be next up on the legislative agenda. IBM, along with other tech giants, appears to have the ear of the Obama administration. IBM chief executive Sam Palmisano joined the CEOs of Google (GOOG), Applied Materials (AMAT) and other tech companies last week in a meeting with President Barack Obama about investment in green technology.

About Green Wombat

Green Wombat is written by
Todd Woody, a veteran environmental journalist based in California who writes for The New York Times, the Los Angeles Times, Grist and Yale e360. He's one of the few people on the planet who have held a northern hairy-nosed wombat in the wild.

Todd formerly was a senior editor at Fortune magazine, an assistant managing editor at Business 2.0 magazine and the business editor of the San Jose Mercury News.